Pep Boys 2009 Annual Report Download - page 134

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THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 30, 2010, January 31, 2009 and February 2, 2008
(dollar amounts in thousands, except share and per share data)
NOTE 17—FAIR VALUE MEASUREMENTS (Continued)
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:
The Company’s long-term investments, interest rate swap agreements and contingent consideration
are measured at fair value on a recurring basis. The information in the following paragraphs and tables
primarily addresses matters relative to these assets and liabilities.
Cash Equivalents:
Cash equivalents, other than credit card receivables, include highly liquid investments with an
original maturity of three months or less at acquisition. We carry these investments at fair value. As a
result, we have determined that our cash equivalents in their entirety are classified as a Level 1
measure within the fair value hierarchy.
Derivative liability:
The Company has one interest rate swap designated as a cash flow hedge on $145,000 of the
Company’s $149,715 Senior Secured Term Loan facility that expires in October 2013. The Company
values this swap using observable market data to discount projected cash flows and for credit risk
adjustments. The inputs used to value our derivatives fall within Level 2 of the fair value hierarchy.
Contingent Consideration:
The Company has recorded contingent consideration as a result of the acquisition of Florida Tire.
The consideration may be paid to the seller on each six month anniversary of the closing date until the
deferred purchase price is paid in full, subject to acceleration or cancellation clauses. The calculation of
the contingent consideration is based on a weighted average probability scenario that includes
management’s assumptions on expected future cash flows. As a result, we have determined that our
contingent consideration is classified as a Level 3 measure within the fair value hierarchy.
The following table provides information by level for assets and liabilities that are measured at fair
value, on a recurring basis.
Fair Value Fair Value Measurements
at Using Inputs Considered as
January 30,
Description 2010 Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents .......................... $39,326 $39,326
Liabilities:
Other long-term liabilities
Derivative liability(a) .............................. 16,401 16,401
Contingent consideration ........................... 1,660 1,660
(a) included in other long-term liabilities
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